Transcript
Albert Einstein described compound interest as ‘the eighth wonder of the world’.
But what is it and how does it work? And more importantly, how can you use it to your advantage?
Simply put, compound interest is when you earn interest on both the cash you have in your savings account and the interest you’ve already earned.
It’s often compared to a snowball going down a hill. The further it travels, the more snow it picks up, and the faster it gains in size.
Let’s look at an example.
You have £5,000 in a saving account earning 5% interest.
At the end of the first year, you earn £250 in interest.
Now you have £5,250 in savings.
Leave that to compound for a second year, and you’ll have £5,510.
And so on.
Now, that might not seem like a lot. But over time, it allows your money to grow exponentially.
Let your cash compound for over 20 years, and you’ll have £13,270 from your initial £5,000 deposit.
Over double your original investment, with almost no effort required on your part. Surprisingly simple, right?
